High earners, good savers/bad investors, getting serious on FIRE

[Redherring]

Topic moved

[ysette9]

Where are you going to live in retirement and how much would that cost? Are you fairly firm on needing $500k for that? Next, you need to spend some serious time daydreaming about what you really want to do with your time and attaching some numbers to how much that might cost. I love the idea of camping around the country. I don’t see how you could spend $100k a year doing that if you aren’t paying for a mortgage. Everything hinges on you having a good grasp of how much you will spend once you no longer work. Frankly, at first blush I think you could be done in a year or two provided you don’t have some ridiculously expensive hobby you will be taking up in the future. I can understand the draw of wanting more savings, especially with those salaries, but seriously, how would you spend all of that money, and would it ring you any more happiness?

[Tyson]

You have a firehose of money going into your stash - nice work getting to the high income!  Our family doesn't make nearly as much as yours does, but we make a lot more than we used to.  IMO one of the biggest mistakes we made was thinking "Oh, we make so much $$ now, we don't really have to be careful with our spending".  And that mindset is what I would most urge you to guard against. 

Keep your lifestyle as efficient as possible.  Don't throw money at problems to make them go away instead of working through them yourself.  This type of carelessness leads to lifestyle creep, which can eat up even the biggest stash. 

Otherwise, a savings rate of 77% is pretty damn awesome.  Nice work.  And being able to FIRE in less than 5 years - that's also PDG.

[fell-like-rain]

First a couple of years slow-travel with backpacks exploring the best hiking trails in the world. After that we’d like to get a (used) VW California and cruise North America, Europe, Australia thin. Camping when and where we can. We have not really mapped out such a lifestyle expense-wise yet, but imagine 100k pr year should large do it.

•   Does 100k pr year for such a life style sound reasonable?

The only answer to that is, "it depends". The fact that you think a backpacking/road tripping lifestyle might cost $100k a year says that your idea of backpacking and road tripping may differ quite a bit from mine. For perspective, I've gone on multi-month road trips with friends where we spent under $100/week/person. So $10k/year for a pair of people, plus auto and health insurance costs. Of course, we would camp nine nights out of ten (occasionally we'd crash at friends/family homes along the way), rarely stay in official (i.e. paid) campsites, and prepare all our own food. Also, whenever we hit a national park, we'd hit the trail for a week or so, which saved on gas costs.

In contrast, if you're mainly staying in paid accommodation, glamping occasionally, and eating every meal out, your costs could pretty easily go from $200/week to $200/day or more. Which starts to put you in the ballpark of your $100k number. So, like I said, it really depends on how you envision your life on the road, and how dirtbaggy you're willing to get.

[pecunia]

Wow! 

You are already there at the 100K per year with the 4 percent rule.  At least you are gnat hair away from it.  Two and a half million invested will net you that.

Whatever you guys took for schooling looks like a path I should have considered.

[Hirondelle]

Awesome job in the high income and saving such incredible amounts of money. I think there's room to optimize some of your expenses like the work lunches and the clothes.

Also one thing I'd like to touch upon is whether your kid really needs a $300/month allowance? That's $75 a week! Holy crap! Your kid is 2 years from college, so I guess around 16 yo. What does he/she all pay with this? Can't he/she get a job? I can imagine in such a HCOL area it might be normal for kids that age to get such an allowance but to me it sounds like plain spoiling at that age and I've seen kids from rich families having a hard time once they get to college and have to work for their own money at $10/hour and/or keep expecting that their parents pay for everything.

Regarding travel $100k/year sounds like A LOT to me, especially as you mention slow travel/camping. I get that guides can make things pricier, but remember that if you slow travel you most likely will spend less per day than in "normal" travel. Slow(er) travel won't let you run from one expediciton to the other, you'll probably be happy just exploring places slowly on your own and only paying for guides ones in a while for special/difficult/dangerous areas. Also you only mention North America, Europe and Australia - have you considered lower COL travel areas like S(E)-Asia, Latin America and Eastern Europe as well? Spending part of your travel days in those places should easily enable you to lower average cost. There are some slow-travel threads on this forum that lay out people's budgets and none of them goes this high up as far as I've seen.

I think with a little tweaking of your current budget and a slightly more frugal approach for post-FIRE life you could be easily FIRE in 2 years once the kid goes to college and start traveling the world.

[Hirondelle]

That sounds very reasonable! Thanks for you additional explanation. I still think it's a lot of money, but I come from a lower class family too so that's probably why ;)

Good job on the stealth wealth attitude though. Sounds like you're trying your very best to teach her how to handle money and that it's working well considering she's saving a lot and gets worried when her parents seem to spend much :)

[Laura33]

FYI, our post-FIRE plans are similar:  wait until youngest kid goes to college, and then basically don't come home for a year or so.  :-)  The analysis that I have found very helpful is the "bucket" method.  The problem with the 4% rule is that it assumes that I need to sustain the income from my first few years -- when I am paying for college and traveling a LOT and before any pensions/SS kick in -- for the next 30-40 years.  I think Goldielocks laid this out first, but the idea is to divide your post-FIRE life into different time periods based on when your income/expenses change, and then calculate how much money you need to fill each bucket.  So for ex. maybe from 50-62, you need $100K/yr; that's $1.2M to fill that bucket.  But then at 62 you claim SS, which combined brings in $50K/yr, so you really only need $50K/yr to fill the gap.  So assume $50K/yr for 15 years, until the statistics say that one of you may die -- that's $750K.  Then from 77-on, your travel expenses go way down, but your medical expenses go up, so maybe now you need $80K/yr and have $25K in SS, so now your delta is $55K/yr -- etc. etc. etc.  Once you figure out how much you need in each bucket, you present-value that to tell you how much you need to have today to fill that bucket -- starting from the furthest-out time period.  So maybe you have a bucket from 77-95, and you calculate you need $900K to fill that bucket.  But that's many years away -- so the reality is that as of today, if you have say $150K, you already have enough to grow into $900K in 25-30 years.  So that bucket is filled -- check.  Then move to the next one.  And when you get to the point where your current savings is sufficient to fill all of your buckets, you are FI and can RE whenever you want.

I found this very helpful, because it told me that I needed quite a bit less than the 4% rule did (we have 2 SS + a pension that will be more than adequate to cover any normal-person's lifestyle needs, so the "real" issue is just covering the time between now and 67-70, with a little extra on the side in case of LTC issues).  And it was most effective for my DH, who had previously believed we needed some ridiculous 8-figure pot to retire in the style to which he'd like to become accustomed.  ;-)

[ysette9]

I’ve done something similar but instead of thinking of it as buckets like Laura33, I just model my different income and expense streams in cFIREsim. I include the extra expense of the mortgage that will end at some point, SS and pension that will kick in way off in the future. I, too, find that I end up needing less money than the 4% rule of thumb would suggest, though it does depend on what you decide is a sufficiently safe succès rate.

[ysette9]

I encourage you to run your own simulations in cFIREsim as well as really read into the research behind the 4% rule of thumb. A 30% dip is completely baked into that number. For cFIREsim you will get simulations of every year of actual market performance in the US going back over 100 years, which includes dips greater than 30%.    There is a great thread on this forum on the safety of the 4% rule. https://forum.mrmoneymustache.com/investor-alley/stop-worrying-about-the-4-rule/

There are intelligent minds who will argue with reason that it might be too optimistic to count on 4% in this environment. However, remember that you aren’t retiring in your early 30s with no social security, and those things matter, whereas someone retiring at 35, planning for a 60-year retirement who thinks that SS won’t be around is going to have a different risk tolerance.

[Laura33]

@Redhotdog:  You are confusing two things.  The bucket method/cFiresim are methods of projecting how much money you will need to have saved at given points in time to make it through your plan.  What you are talking about is, once you get to Day 1 of Bucket A, how do you make sure that your Bucket A money will last until Day 1 of Bucket B.  And that is all about investment allocation and withdrawal strategies, which is another issue entirely. 

For one thing, my very rough bucket estimates do not assume any growth over the term of the bucket.  Go back to my original math, where Bucket A was $100K/yr for 12 years, or $1.2M.  The reality is, you would not actually need $1.2M on Day 1, as my very simplistic math assumes -- with a 12-year withdrawal period, you could probably start out with $1M (or less), because even if you take out $100K on Day 1, that still leaves $900K to grow (and even if you buy bonds that mature every year, you could still get, what, 2-4% interest, which means that by the end of Year 1, your remaining $900K would grow to $918-936K -- meaning the growth alone will cover 20-30% of your next year's needs).  So if you actually have $1.2M on Day 1 as the plan says, you could literally put the money for your entire bucket in the bank on Day 1 of Bucket A and still make it to Day 1 of Bucket B with no problems at all.*  Meanwhile, the money for Bucket B would still be in the market while you're living off Bucket A, because you'd have plenty of time to ride out the ups and downs.

IOW, my estimates are extremely conservative. In reality, I plan to do a phased approach, where I keep 3-5 years of investments in bonds or CDs, and the rest in VTSAX, and then buy more bonds/CDs every year to keep the ladder going -- that way, I have my living expenses covered for long enough that if the market hits a big wall, I can just live on the CDs/bonds and wait for the market to come around.

*You could, but you wouldn't want to, because you'd want to put it somewhere that at least keeps up with inflation to preserve your buying power over the next 12 years.